KARACHI: Banks were probably the first institution to be restored after the devastating earthquake of October 8, but business is reported to be far below normal. The earthquake destroyed many buildings occupied by banks and their records. However, most private sector banks and the National Bank of Pakistan, which has a large presence in the affected areas, were quick to bring their branches in order and became operational within a month. The State Bank said that it had a list of branches which were destroyed and were restored to work.
According to the central bank, 98 per cent of the affected branches were made functional. Banks feel comfortable with their performance. But the creation of a new economy is required and a detailed plan is needed. But banks have no idea where to start. The government has decided to announce plans to generate economic activities and create employment but so far nothing has been done to this effect.
The basic problem, to protect people from cold, is still the main preoccupation of the government. Though the government succeeded in attracting pledges from international donors of over $6 billion in loans and grants for the rehabilitation of the people and restructuring of the quake-hit areas, it needs more time to develop a plan. It plans to ask banks to initiate disbursement of micro credit to activate the frozen economy. However, the most important question before the banks is how to reach out to the most vulnerable. The confidence of the stunned people of the region also has to be restored. Banks are keenly watching how the government’s move to disburse Rs80 billion as compensation and for rebuilding of houses goes.
Banks say the aid money alone can create enough heat to start the frozen engines of the economy. Even if half of the Rs80 billion is used to build houses and the rest for buying basic necessities, including food items, a vital change will be felt in the economy of the area.
Reports have appeared stating that the money given to the affected people was not being spent but kept in banks. Banks don’t deny the possibility but said deposits have not grown to prove these reports right. The region’s people do not have a tradition of banking, but nevertheless the building of new houses is proceeding at a slow pace. Perhaps the money is being used by families to meet other expenditures such as in paying off old loans or for marriages, etc.
The government wants to involve banks in providing micro credit to the people of the area. The idea is to create jobs and generate economic activity. However, though they want to help the people and revive economic activities, the banks are of the view that the settlement of the people is a highly challenging one. Accessibility is a big problem. It was extremely difficult for even the well equipped army team to reach the hundreds of affected areas in the region: banks would simply sit back. Only the major cities and towns could be accessible to them. But again, they want a study to know what kind of trading and production activities existed in the remoter regions and what was the volume of business.
The government has been saying that the earthquake will not affect the economy because the quake-hit areas that were economically underdeveloped. The government’s stance could provide an excuse to the private sector and banks to maintain a low level approach to rehabilitation.
The government has not yet announced any plan to involve banks in economic activities in the affected areas. The State Bank of Pakistan has not come up with a plan to provide micro credit to the affected people. It is believed that the following steps may stimulate plan for interest among banks: a) publication of an initial study about the economic potential of the areas where investment can be made to generate activity and employment; b) Immediate launching of short-term and medium-term plans for revival of economy of the areas; c) Involvement of the maximum number of local people in the reconstruction and rehabilitation plan; d) A study of the Rs80 billion cash disbursement and its impact; e) A plan to invite the private sector for investment in specific sectors with suitable government guarantees and incentives.
The quake hit areas could provide cheap labour for the Pakistani industrial sector. The government should encourage some industries to relocate their production units to the Frontier and Azad Kashmir.
